how to protect trading strategies for a colocated server

this question may sound silly. more and more HFT hedge funds colocate their servers with the exchange or brokers. the question is, if the server is very profitable, say, tens of millions per year, how can the hedge fund be assured the strategies will not be stolen? the broker company may have no interests stealing it, but the IT person managing your server definitely would be interested which is much more than their salary, and then reverse engineering your code. Please share your thoughts.

so according to your knowledge, how do hedge funds protect themselves in the case of server colocation? most of hedge fund have to colocate servers with brokers instead of building their own data center. thank you for your input.

I am talking about encrypting your binaries and using a second application to decode it before you need it, using a password. The software actually never has to be written to disk in its decrypted form, only loaded in memory making it much much harder to steal. The encrypted software is actually 100% unusable without the second decrypting application

Or you can use the like of bitlocker to create password protected partitions on your harddrive. I would not know how secure it is but it is likely pretty good.

You could also separate your strategy into two parts and have each one run from different locations if that does not prevent proper operations. Or even split your strategy between different broker accounts but that is harder to arrange.

I am talking about encrypting your binaries and using a second application to decode it before you need it, using a password. The software actually never has to be written to disk in its decrypted form, only loaded in memory making it much much harder to steal. The encrypted software is actually 100% unusable without the second decrypting application

Or you can use the like of bitlocker to create password protected partitions on your harddrive. I would not know how secure it is but it is likely pretty good.

You could also separate your strategy into two parts and have each one run from different locations if that does not prevent proper operations. Or even split your strategy between different broker accounts but that is harder to arrange.

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Or another strategy is to seperate the process into two parts on differenet colocated servers: 1) Price acquisition and singal generation 2) Trade execution and account management.
1) above generates both real and dummy trades, perhaps hundreds per minute 2) Above filters out the dummy trades only actually executing the real ones.

suppose the software binary is encrypted, how can the second application load it into memory and decrypt it to make it run without writing any temporary decrypted files on the disk first?

Quote from CGNobody:

Software-wise you can encrypt your application.

I am talking about encrypting your binaries and using a second application to decode it before you need it, using a password. The software actually never has to be written to disk in its decrypted form, only loaded in memory making it much much harder to steal. The encrypted software is actually 100% unusable without the second decrypting application

Or you can use the like of bitlocker to create password protected partitions on your harddrive. I would not know how secure it is but it is likely pretty good.

You could also separate your strategy into two parts and have each one run from different locations if that does not prevent proper operations. Or even split your strategy between different broker accounts but that is harder to arrange.

Or another strategy is to seperate the process into two parts on differenet colocated servers: 1) Price acquisition and singal generation 2) Trade execution and account management.
1) above generates both real and dummy trades, perhaps hundreds per minute 2) Above filters out the dummy trades only actually executing the real ones.

More...

the second server that executes real trade can not trade via the same broker that houses your data server. this is safe only if the IT personal does not know you have a profitable server hosting with them;otherwise, they can still reverse engineer your code and find out real and dummy signals.

This is the mindset of the "retail trader". The retail guys keep thinking there's some magical "hedge fund strategy" that's uber secret and, if discovered, can make the secret tons of money.

The reality isn't quite so. There are few strategies that are original in any sense of the word. The key is implementation. For example, to implement a large a scale basket trading strategy, you need to get all your ducks from trading logic, to execution algorithms (for millions of dollars worth of blocks), to accounting and settlement, to risk control in a row. This isn't something that can be done in trade station or what have you.

Very few big boy strategies are truely secretive. Even back in the LTCM days, what they were actually were not exactly unknown around the street and most groups did some form of it. They were able to do it bigger, faster, and, eventually, fell harder.

Same applies today.

Quote from trend2009:

so according to your knowledge, how do hedge funds protect themselves in the case of server colocation? most of hedge fund have to colocate servers with brokers instead of building their own data center. thank you for your input.

it could be generally true most of strategies are not innovative. But there are cases some strategies can make tons of money. for example, David shaw and James Simon. If the strategy makes tons of money, it will interest people to steal it because few people can make millions per year. what you mean is that the person who spends time stealing your strategy better invest his time writing his own strategy. it is not the case since those IT guys are still working for the brokers.

Though trade management is important, but the strategies that generate the trading signals are the kernel. Any individual can choose to play safe as long as he has the strategy.

Quote from sjfan:

This is the mindset of the "retail trader". The retail guys keep thinking there's some magical "hedge fund strategy" that's uber secret and, if discovered, can make the secret tons of money.

The reality isn't quite so. There are few strategies that are original in any sense of the word. The key is implementation. For example, to implement a large a scale basket trading strategy, you need to get all your ducks from trading logic, to execution algorithms (for millions of dollars worth of blocks), to accounting and settlement, to risk control in a row. This isn't something that can be done in trade station or what have you.

Very few big boy strategies are truely secretive. Even back in the LTCM days, what they were actually were not exactly unknown around the street and most groups did some form of it. They were able to do it bigger, faster, and, eventually, fell harder.